Monday 3rd Aug 2020 - Logistics & Supply Chain

Ship shape

Ahoy there landlubbers. I have news of big changes on the high seas – and they could just put a smile on the faces of some logistics professionals. There are two big policy shifts afoot that could alter the balance of power between shippers (companies that despatch goods) and carriers (the shipping companies that sail them round the world often on massive container liners).

The first change is that from autumn 2008, the block exemption from competition policy which the EU had granted to conferences – cartels by any other name – of ship owners since 1987 will be abolished. Details of the system that will apply from that date are still being negotiated but it looks likely that charges for shipping container cargo will fall.

A tidy saving
But don’t expect a large cut in the bill. I gather from industry contacts that the fall is likely to be a single digit percentage. Even so, for a company shipping a lot of a cargo each year that could add up to a tidy saving.

The second reason is that the exemptions enjoyed by protection and insurance (P&I) clubs that provide insurance for ships and cargoes will end in 2009, again as a result of a toughening of EU competition policy. As a result, insurance rates are also likely to fall. Equally important, shippers of cargoes should be in a stronger position to negotiate better terms and conditions for their cover.

That’s important because current insurance agreements often contain all manner of weasel clauses which seek to exempt the insurer from liability when things go wrong. But with insurers, ’twas ever thus.

I recently heard a story of a container holding a $7.5m machine for export. It slipped from the hook that was lifting it onto the ship and crashed onto thequay. Not surprisingly the machine was destroyed and there was a lengthy wrangle over whether the cargo owner’s or the ship owner’s insurance was going to pay for the damage.

The effect of both changes may mean that it will be possible to get ship owners to take on more of the financial responsibility for the cargoes they carry if things go wrong. At present, the combination of cartel power in both shipping and insurance cover means that the bulk of the financial risk of transporting a cargo falls on its owner, even if it is the ship owner or cargo handler’s fault that it is damaged in transit.

Chris Welsh, general manager of campaigns at the Freight Transport Association, tells me: ‘Our belief is that industry is probably losing tens of millions a year because shippers are relying on their own cargo insurance rather than claiming against the cargo insurance of the ship owners.’

Overall, the changes in the pipeline could signal the biggest shift in the balance of power between ship owners and cargo owners in more than a century. Currently, the relationship is governed by a body of complex maritime law including the Hague Rules, the Hague-Visby Rules and the Hamburg Rules, some of which are enshrined in the bill oflading which accompanies each cargo.

Obeying maritime law is important. But some ship owners are open to the accusation that they have used the power of their cartels to add more and more onerous conditions to bills of lading. Welsh argues that companies that despatch large amounts of cargo could negotiate more aggressively over some of those terms and conditions.

Discussion guide
In fact, the FTA in the UK has recently published a guide which pinpoints a range of areas which ought to be up for discussion. Its lessons are likely to be equally applicable across Europe.

One of the conditions the FTA suggests ought to be up for negotiation is who pays for onward transportation if an expected cargo is delivered to the wrong port, not uncommon when ships are diverted by owners from their planned destination to pick up new cargoes.
Of course, one of the big dangers in any major change such as those being pushed through by the EU is that our old friend the law of unintended consequences kicks in. The existing system has its strong points and it is important that they are not only not lost but strengthened.

As Chris Welsh says: ‘We are anxious to retain the best aspects of the liability system but many of the terms and conditions are indisputably out of touch with modern business practice and the quality services and performance standards associated with such services.’

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